Technology and Global Industry: Companies and Nations in the World Economy (1987)

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REVITALIZING THE MANUFACTURE AND DESIGN OF MATURE GLOBAL 49 PRODUCTS Revitalizing the Manufacture and Design of Mature Global Products ALVIN P. LEHNERD Manufacturing enterprises are evolutionary entities. Over time, their product portfolios expand through evolutionary and chronological developments. Products are usually designed and developed one at a time. As a result, it is the exception when the designs of a manufacturer's products embrace much compatibility, standardization, or modularization. The norm is that product portfolios are rarely designed simultaneously; designs take place in a sequential manner. Additionally, many current products of U.S. manufacturers were designed and tooled years ago, yet prevailing labor rates, manufacturing processes, energy costs, availability of materials, and interest rates are often significantly changed from the time of the original product design and tooling activities. It is rare that a U.S. manufacturer invests the time and resources necessary to rationalize production of an entire product line to fit the changing economic environment and to take advantage of opportunities provided by technological advance. Manufacturers usually design for function, then redesign for manufacturing; thus, two design iterations usually take place. If an enterprise wishes to maintain or gain market share in global markets, the firms' managers and technical personnel must learn to combine manufacturing with innovation in product design. Few enlightened companies take time for a third design iteration to automate and mechanize production for global leadership in cost and value. In many, if not all, instances, design for manufacturing is also constrained by the existing resources of plant and equipment. In other words, manufacturing engineers guide the design decisions to match the profiles 

REVITALIZING THE MANUFACTURE AND DESIGN OF MATURE GLOBAL 50 PRODUCTS and capabilities of their existing factories and their respective in-house capabilities. Inplace facilities are frequently barriers to product innovations. Fixed capital investments in existing capabilities are also barriers to more advanced lower-cost processes. Organizations commonly ignore what the production cost could be if their products were not shackled to outdated manufacturing processes and could also use state-of-the-an materials requiring new processes and procedures. An additional issue is that few U.S. domestic manufacturers look at their product offerings as global opportunities. This domestic myopia— the belief that the marketplace ends at the U.S. borders—is a problem for U.S. industry, and the problem will only get worse as the world becomes more economically integrated. Finally, corporate planning horizons are too short, and manufacturers seldom ask themselves what they are doing to ensure their longevity in the business. Too many managements or boards of directors do not act until external influences cause significant disruptions and spur the organization into action. This chapter presents a case history of a 1970s program at Black & Decker Corporation to redesign a product line for production automation and leadership in cost and value. The program was an effort to redesign standard products to take advantage of opportunities for using new materials and new manufacturing and design techniques. BLACK & DECKER When managers at Black & Decker Corporation observed growing global competition in the 1960s and 1970s, they decided that a window of opportunity existed to improve their product lines and manufacturing capability. Moreover, they decided that if they did not take time to do it right the first time, they would never have the time or resources to do it over. They recognized that if they were to be a domestic manufacturer with aspirations to do business internationally 20 years hence, they would have to change the business in a way that would ensure that long-range performance. This involved making certain irrevocable decisions. The impetus for change came from three sources. First, it was evident that foreign competition would increase in Black & Decker's product markets and that this would lead to foreign participation in new, related product markets. Second, in the 1970s, inflation in costs of labor, material, services, and capital goods was a serious consideration. Table 1 shows the effect of inflation in the labor component of product costs. It assumes an 8 percent compounded inflation rate over five periods from year 1 to year 6. To 

REVITALIZING THE MANUFACTURE AND DESIGN OF MATURE GLOBAL 51 PRODUCTS maintain constant labor-cost content in the product, one-third of the labor has to be removed from the product between period 1 and period 5. In Black & Decker's assessment, offsetting inflation in labor costs depended on making better use of labor in adding value through design standardization, mechanization, automation, better use of material and floor space, and intelligent capital planning. TABLE 1 Impact of Wage Inflation on Labor Costs (8 percent compounded inflation) Year Hourly Wage ($) Labor Minute Value of $3.00 1st 3.00 60.0 2nd 3.24 55.5 3rd 3.50 51.5 4th 3.78 47.6 5th 4.08 44.1 6th 4.41 40.8 The third factor in Black & Decker's decisions was an anticipated continued public attention to consumer protection and environmental concerns. In the power tool industry, this attention took the form of requirements for double insulation of tools. The term "double insulation" refers to the additional insulation barrier placed in an electrical device to protect the user from electrical shock if the main insulation system ever fails. In the late 1960s there was a strong possibility that double insulation of domestic power tools would be legally required. Black & Decker decided that the threat of required double insulation provided an opportunity to study the entire product line. The program begun at Black & Decker in the early 1970s was called Double Insulation. All consumer power tools were to be redesigned at the same time and would initially be manufactured in various locations in North America with standardized pans and components. Double Insulation was Black & Decker's vehicle to redesign the line and develop a "family" look, simplify the product offering, reduce manufacturing costs, automate manufacturing, standardize components, incorporate new materials, improve product performance, incorporate new product features, and provide for worldwide product specifications. The program was designed to incorporate double insulation on 122 basic tools with hundreds of variations. Of 18 tool groups manufactured by Black & Decker, 8 contributed 73 percent of sales, 71 percent of earnings, and 91 percent of units sold. These groups were tools and drivers, jig saws, shrub and hedge trimmers, hammers, circular saws, grinders and polishers, finishing sanders, and edgers. 

REVITALIZING THE MANUFACTURE AND DESIGN OF MATURE GLOBAL 52 PRODUCTS Many of Black & Decker's U.S. competitors that had already introduced products with double insulation had incurred a 15 to 20 percent premium in material and labor costs in doing so. It was Black & Decker's goal to add double insulation without increasing the cost of any new tool beyond that of the existing product. In addition, of course, Black & Decker aimed to avoid dilution of assets or return on investment. In this instance, Black & Decker's decision to introduce fundamental redesign throughout its product line was motivated by the prospect of an industrywide requirement to incorporate double insulation in power tools. At other times, competitive product analysis plays .an important role in decisions to redesign (the Appendix to this chapter describes a competitive product analysis carried out by the Sunbeam Appliance Company). An important part of the plan for Double Insulation was the decision that the resources of the organization would be concentrated on this transition. Black & Decker would leave only a small portion of its management and engineering staff to carry out development efforts on new products. The development of new products was put in abeyance, and the resources usually devoted to development were focused on the manufacturing processes essential to the program. To accomplish the engineering goals, a bridge was needed between design engineering and manufacturing. That bridge was the placement of advanced manufacturing engineers in residence at headquarters to work elbow to elbow with the design engineering groups. These manufacturing Figure 1 Financial analysis of Double Insulation program. 

REVITALIZING THE MANUFACTURE AND DESIGN OF MATURE GLOBAL 53 PRODUCTS engineers were involved with machine development, process development, value and cost engineering, purchasing engineering, and packaging. In addition to bringing manufacturing and design together at the engineering level, the basic structure of the company was changed. Before these changes were made, the program structure had consisted of a general manager and two vice presidents— one for manufacturing, and one for engineering and product development. That organization was changed, and a new position—vice president of operations—was developed to combine manufacturing, product development, and advanced manufacturing engineering under one manager. Figure 2 Investment requirements for Double Insulation program. A final general point about the Double Insulation program was the large investment required and the long time horizon needed to reap a return on that investment. As Figure 1 shows, the break-even point in the program came nearly 7 years after the program began, and total cost was $17 million. Figure 2 shows the cumulative cost of the program from 1971 through 1975. Capital expenditures were $5 million. tooling was $5.5 million, and development engineering and manufacturing technology were $1? million each. It is important to note that this program is rare from the standpoint that as much money was spent on manufacturing technology as on development engineering. 

REVITALIZING THE MANUFACTURE AND DESIGN OF MATURE GLOBAL 54 PRODUCTS Designing For Manufacture The transition to Black & Decker's leadership in cost and value was the result of collaborative effort among design, manufacturing, and manufacturing engineering functions. The changes in design and production of motors are one example of this collaborative effort. The most common component in all power tools is the universal motor. Figure 3 shows all the components of such motors before redesign. Figure 4 shows the motor configuration both before and after redesign. Motors are now manufactured automatically, untouched by human hands. The laminations, placed at the head of the mechanized line, are stacked, welded, insulated, wound, varnished, terminated, and tested automatically. Table 2 shows, at 1974 volumes of 2,400 pieces per hour, that the new Double Insulation manufacturing system required 16 operators and that the old design would have required 108 operators. Material, labor, and overhead cost $0.51 in the old system and $0.31 in the new. The labor content cost $0.02 in the new system, down from $0.14 in the old. Through attention to standardization, the entire range of Black & Decker power tools could be produced using a line of motors that vary only in stack length—that is, standardization froze the dimensional geometry of Figure 3 Electric motor field components. 

REVITALIZING THE MANUFACTURE AND DESIGN OF MATURE GLOBAL 55 PRODUCTS the motors in the axial profile. All motors can now be produced on the same machines, and the only difference is stack length and the amount of copper and steel used. As Figure 5 shows, designs ranged from 60 watts to 650 watts, and the only dimension that changed was in the axial profile. The only difference in cost from the low-wattage to the high-wattage motors was the cost of materials and machine time; labor cost remained the same through the entire wattage range. Figure 4 Motor configuration before and after redesign. TABLE 2 Motor Field Production, Operator Requirements, and Costs at 2,400 Units per Hour, Old and New Design and Manufacturing Process Old Design and New Design and Manufacturing Process Manufacturing Process Operators to produce 108 16 Cost to insulate $0.51 $0.31 (materials, labor, overhead) Labor cost $0. 14 $0.02 Capital to produce $400,000 $1,222,000 Annual savings (labor and materials only): $1,280,000 

REVITALIZING THE MANUFACTURE AND DESIGN OF MATURE GLOBAL 56 PRODUCTS Figure 5 Motor stack length, 60 to 650 watts. Another effect of design for manufacture can be seen in the production costs for the armature of the motors. As Table 3 shows, four times as many operators would have been needed to produce armatures under the old system as under the new system at a constant production volume. The effect on labor costs was dramatic. The labor cost of the manufacture using the new design was only $0.025 cents per unit, whereas the cost using the old design was $0.108 per unit. TABLE 3 Armature Production, Operation Requirements, and Costs at 1,800 Units per Hour, Old and New Design and Manufacturing Processes Old Design and New Design and Manufacturing Process Manufacturing Process Operators to produce 60 15 Cost to insulate $0.26 $0.11 (materials, labor, overhead) Labor cost $0.108 $0.025 Capital to produce $2,340,000 $795,000 Annual savings (labor and materials only): $540,000 

REVITALIZING THE MANUFACTURE AND DESIGN OF MATURE GLOBAL 57 PRODUCTS The Results Of Double Insulation The Double Insulation program worked for Black & Decker. It reduced production costs, created opportunities for profitable vertical integration, increased market share, and improved the company's capability for new product development. Each of these changes is discussed further in the following sections. Cost Reductions Cost reductions due to the Double Insulation program came mostly from labor savings, and the balance came from reduced factory overhead, material savings, and savings from standardization of parts and modularization. In 1976 Black & Decker reviewed the program and compared existing equipment and labor costs with the capital equipment and labor costs that would have been required for the 1976 volume without the Double Insulation program (see Table 4). If the company had not carried out this program, estimated 1976 requirements for motor manufacture would have been nearly 600 people whereas the new system required only 171. That is a labor cost difference— from $6.4 million down to $1.8 million—of $4.6 million per year. The capital investment for the new system was higher than simple capital replacement— $4.6 million instead of $3.0 million—but with labor savings of $4.6 million per year, the payback on the investment was 4 months. In its 1974 annual report, Black & Decker published its assessment of TABLE 4 Comparison of Labor and Capital Requirements for Electric Motor Production, 1972 and 1976 Volumes, Old and New Designs 1972 Volume 1976 Volume Workers required Old design 242 596 New design 86 171 Annual labor cost Old design $2,700,000 $6,400,000 New design $ 900,000 $1,800,000 Annual labor savings $1,800,000 $4,600,000 Capital costa Old design $1,300,000 $3,000,000 New design $2,300,000 $4,600,000 Capital cost difference $1,000,000 $1,600,000 Payback 1.25 years 4 months a Includes floor space at $20/sq. ft. 

REVITALIZING THE MANUFACTURE AND DESIGN OF MATURE GLOBAL 58 PRODUCTS the effect of this project on four basic power tools (Figure 6). In current dollars, Black & Decker's power drills, for example, were $10 cheaper in 1973 than they were in 1958. Figure 6 Prices, 1958 and 1973, of four basic hand power tools. Figure 7 shows substantial reductions in the real cost of Black & Decker's products. The constant-dollar cost of products A, B, and C dropped by 47, 62, and 55 percent, respectively. The company was able to produce each product at an almost constant current dollar cost despite steady inflation in materials and labor costs. For Black & Decker's pricing position in the marketplace, the relevant comparison is between the top two lines on each graph, which show the difference, in current dollars.. between manufacturing costs with and without Double Insulation. Increased Vertical Integration The cost and value leadership permitted unprecedented low prices to the consumers and thereby expanded Black & Decker's market share and increased household penetrations of power tools. The expanded volume resulted in opportunities for cost-effective vertical integrations. Examples include: 

REVITALIZING THE MANUFACTURE AND DESIGN OF MATURE GLOBAL 59 PRODUCTS • Use of plastic materials grew from thousands of pounds per year to millions of pounds per year. Black & Decker's molding facilities were able to justify railcar bulk shipment of uncolored plastics resulting in a cost advantage of 5, 10, and sometimes 15 percent per pound. The coloring of plastic compounds at the molding machine reduced inventories, provided instant response to color changes, and eliminated material handling. • The standardization of gears, and design revisions that allowed the change to spur gears from bevel gears, permitted the use of gears made from powdered metal. This change eliminated the need for gear cutting and bobbing, heat treating, and gauging. These activities all contributed to high capital cost, high labor cost, and inefficient use of material in production. The volumes were large enough to permit vertical integration of fabrication of powdered metal gears. • Before the Double Insulation program, 29 percent of the total cost of a drill was in the cost of a purchased chuck. Production volumes, again, coupled with a modern state-of-art processing system enabled backward integration into chuck manufacturing at reduced costs of about 40 to 50 percent. • Standardization of bearings, switches, cord sets, cartons, fasteners, and so on resulted in component volumes high enough to justify seeking sources on world markets for the best price. The ''inflation offset'' idea proved to be recursive in that low production cost permitted low sales price, which increased unit sales, fueled vertical integration, and further reduced costs. Competitive Performance And Market Share In the U.S. market, Black & Decker's competitors in consumer power tools were caught absolutely fiat-looted. Their product designs and manufacturing processes were costly, and in an attempt to continue to compete they tried to match Black & Decker prices. This diluted their profitability and collapsed their ability to redesign to match Black & Decker. In the resulting shakeout in the market for consumer power tools, Stanley, Skil, Pet, McGraw Edison, Sunbeam, General Electric, Wen, Thor, Porter Cable, and Rockwell all left the consumer market. Sears Roebuck and Co. was able to stay in the domestic consumer market with Black & Decker. In the European market, consumer power tools were much more expensive because the tool offerings were different. European tool producers provided a power driver in the drill configuration, but all other power tools—sander, circular saw, hedge trimmer—were sold as attachments. The availability of new low-cost single-purpose power tools enabled the 

REVITALIZING THE MANUFACTURE AND DESIGN OF MATURE GLOBAL 60 PRODUCTS Figure 7(a) Figure 7(b) 

REVITALIZING THE MANUFACTURE AND DESIGN OF MATURE GLOBAL 61 PRODUCTS consumer to eliminate the inconvenience and performance compromise of attachment technology. Black & Decker performed well throughout Europe as the new tools both greatly expanded Black & Decker's market share and increased household penetration. Figure 7(c) Figure 7 Product cost trends in current dollars with and without Double insulation and product cost trend with Double Insulation in constant 1967 dollars for three products, 1967-1980. Impact On New Product Development Another benefit of Black & Decker's efforts was a substantially improved ability in product development. As new product concepts emerged, much of the work in design and tooling was eliminated because of the standardization of motors, bearings, switches, gears, cord sets, and fasteners. Design and tooling engineers working on a new product had only to concern themselves with the "business end" of the product and to perfect its intended function. New designs could be developed using components already 

REVITALIZING THE MANUFACTURE AND DESIGN OF MATURE GLOBAL 62 PRODUCTS standardized for manufacturability. The product did not have to start with a blank sheet of paper and be designed from scratch. As products reached their maturity and had to be dropped, massive write- offs and scrapping of tools and equipment were avoided because there were few special-purpose tools or equipment. This flexibility allowed marketers and managers to pivot quickly and avoid being tied to a dying product because they could not afford the write-offs. In short, the pace of new product development and product retirement was greatly accelerated. Products could be introduced, exploited, and phased out with minimal expense related specifically to the decision to develop or retire a product. SUMMARY AND CONCLUSIONS In accomplishing the dramatic cost reductions through the Double Insulation program, the attitudes of the management were extremely important. Black & Decker management had a target of 15 percent compounded growth rate, and they wanted to remain independent and to service world markets. To do these things, the management focused not on marketing or financial manipulation, but on cost and value leadership in the industry. The management, as a team, projected how a successful program of this type could affect the marketplace and had the courage and tenacity to see it through. Black & Decker was also fortunate in having a large mount of latent talent: Many ordinary people proved capable of performing extraordinary tasks. With pricing and promotional strategies, the corporation was able to provide enough growth with the product improvements to avoid either reductions or expansions of its labor force. Black & Decker's experience with the Double Insulation program shows the potential benefit of aggressively evaluating the design and production of "mature" manufactured products. Considered in relation to developed global markets, advances in materials and manufacturing processes provide opportunities for redesigning products to decrease the cost and increase the quality of manufactured goods. Although the success that Black & Decker had with power tools may not be replicated in other industries, the principle of redesign and retooling for cost and value leadership in global markets can provide a focus for other manufacturing firms. It is a valid approach to achieving global competitiveness in manufacturing. By this means, U.S. firms can design, develop, and manufacture world-class products in the United States and at the same time achieve leadership in product value. 

REVITALIZING THE MANUFACTURE AND DESIGN OF MATURE GLOBAL 63 PRODUCTS APPENDIX COMPETITOR ANALYSIS BY SUNBEAM APPLIANCE COMPANY In 1982 Sunbeam Appliance Company launched a program aimed at capturing at least 30 percent of the worldwide market share for the steam/ dry iron in markets they wished to participate in. The first step was to assess global production capabilities and methods. Sunbeam obtained samples of competitive products from around the world for analysis of materials and labor content— estimated in time, not dollars. Components were reviewed and estimates of production costs were developed for all of the designs. After this material was pulled together, project management convened a 2-day review for Sunbeam engineers from Australia, Germany, England, Canada, Mexico, and the United Sates to talk over what had been uncovered in this global product evaluation. That analysis revealed some interesting aspects of the design and manufacture of steam/dry irons around the world. The number of pans used in the product ranged from a high of 147 parts to a low of 74 pans. The number of fasteners ranged from 30 to 16, and the number of fastener types in any one design ranged from 15 to 9. Sunbeam's existing product used 97 pans with 18 fasteners in 10 configurations. Reducing the cost of that design, incorporating everything learned from composite design, yielded a design which had 73 parts, 13 fasteners, 7 types. Figure A-1 Relationship of pan count to material and labor cost per iron. 

REVITALIZING THE MANUFACTURE AND DESIGN OF MATURE GLOBAL 64 PRODUCTS To gain a significant share of the market, however, it was necessary to leapfrog existing products and come up with a design with significantly lower cost and complexity over competitive offerings. Such a design was developed, with 51 parts and 3 fasteners in 2 configurations. Figure A-1 makes the point that driving down the part count also drives down cost. Although reducing the part count entails a considerable effort in design engineering, effective design and process engineering will drive down labor and material costs. The result of that effort was a composite design that would be the best of all of the products collected with attention to what the product would cost if the design were used throughout the world and compatibility were maintained. The new design is substantially cheaper to produce than either of Sunbeam's existing designs. The product was launched in 1986.